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Information Technology Outsorcing Transaction - Halvey K.J.

Halvey K.J. Information Technology Outsorcing Transaction - Wiley Publishing, 2005. - 649 p.
ISBN-10 0-471-45949-6
Download (direct link): informationoutsourcingtransactions2005.pdf
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Benchmarking. Depending on the scope and duration of the IT outsourcing arrangement, the parties may wish to consider including in the contract a mechanism for benchmarking the customer’s services and pricing against others in the industry. As discussed further in Chapter 9, if the parties agree to benchmark services and/or pricing, they will need to negotiate the scope of the benchmark (e.g., overall versus individual
140 Ch. 4 Outsourcing Contract
services), the pool of organizations that will be benchmarked, and the benchmarker.
Customer satisfaction. A key reason for the customer to enter into an IT outsourcing transaction is to improve user and/or management satisfaction. Increasingly, customers include a requirement that the vendor or a third party perform regular satisfaction surveys, often with an obligation to improve survey results periodically. In instances where the parties agree to include a mechanism for measuring customer satisfaction in the IT outsourcing contract, the parties typically negotiate the content of the satisfaction survey as well as the group of individuals to be surveyed.
Gainsharing. While gainsharing is not receiving as much attention as it once did, some customers still wish to consider gainsharing opportunities. Examples of gainsharing mechanisms include payment to the vendor of an incentive based on customer profits, providing options to the customer, and the payment to the vendor of an incentive based on actual savings generated by the vendor. A more detailed discussion of gainsharing is set forth in Chapter 9.
(g) CURRENCY COMPLIANCE. The question that arises for customers and vendors is whether the methodologies and technology used by the customer in connection with its IT operations or used, developed, or acquired by the vendor in connection with the provision of IT services are or will be able to convert relevant financial and other data to account for use of the Euro and then read and process data using the Euro.
In negotiating the IT outsourcing contract, the parties should consider the impact, if any, of the Euro or other new currency. Obviously, the issue is more relevant for companies with European operations or those that do business in Europe (keeping in mind that electronic transactions and transactions over the Internet broaden the geographic activities of many companies).
Both the customer and the vendor should ensure that the IT outsourcing contract provides adequate protections regarding the use of the Euro and each party’s responsibility and liability in the event the relevant methodologies and technology does not convert, read, and/or process data correctly using the Euro or there are systems or business failures or errors caused by the inability to convert, read, and/or process data using the Euro.
(h) LEGAL AND REGULATORY COMPLIANCE. One of the more contentious issues that often arises when negotiating an IT outsourcing contract is responsibility for compliance with laws and regulations. The customer typically takes the position that the vendor should be responsible for keeping up to date with respect to all existing and new laws and regulations that may impact the delivery or receipt of the services, as well as being responsible (both operationally and financially) for implementing any changes necessary to be in compliance. This
4.3 Key Contract Issues 141
position may apply to all laws and regulations, regardless as to whether they are generally applicable or applicable only to the customer’s specific industry. The vendor, however, often takes the position that it is not a compliance company and that the customer is in the best position to keep abreast of, interpret, and bear the financial risk for implementing changes necessitated by laws and regulations applicable to the customer and the customer’s industry. The outcome of the negotiations may depend on the type of services outsourced, the leverage of the parties, and whether the customer is in a regulated industry.
(i) TRANSFER OF EMPLOYEES. If the IT outsourcing arrangement between the customer and the vendor anticipates that the customer will terminate some or all of its IT employees in the hope or with the express requirement that the vendor will hire these employees to provide services to the customer, the IT outsourcing contract should expressly state the nature of the vendor’s obligations with respect to these employees. Any transaction of this sort is replete with employment and labor law issues, most notably those involving pension plans, severance payments, termination notice requirements, union rights, and wrongful termination.
The manner in which the termination of the customer’s IT employees and the subsequent hiring of such employees by the vendor is handled can determine the success of the customer’s decision to outsource. Regardless of how this transfer of employees will be structured, the customer and the vendor must cooperate to ensure that the rights of the customer’s employees are not violated by the contract or subsequent conduct of the parties. In light of the potential for such suits, however, the customer should have the IT outsourcing contract reviewed by an attorney familiar with labor and employment issues before entering into any outsourcing arrangement to ensure that the contract does not, on its face, violate any local, state, federal, or country laws.
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